Ajay Ingot Rolling Mill Pvt. Ltd.

Brickwork Ratings reaffirms the long term ratings for the Bank Loan Facilities of Rs. 30.05 Crs of Ajay Ingot Rolling Mill Pvt. Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (28 Feb 2020)	Present
Fund Based	31.52	30.05	Long Term	BWR BBB - /Stable Assignment	BWR BBB - /Stable Reaffirmation
Grand Total	31.52	30.05	(Rupees Thirty Crores and Five lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

Brickwork Ratings has reaffirmed the long term rating at BWR BBB- (Stable) for the Bank Loan Facilities of ₹ 30.05 Crores of Ajay Ingot Rolling Mill Pvt. Ltd. BWR believes that Ajay Ingot Rolling Mill Pvt Ltd's (AIRMPL) business risk profile will be maintained over the medium term. The 'Stable' outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues and profit margins show lower than expected figures.

BWR has essentially relied upon the audited financial statements of Ajay Ingot Rolling Mill Pvt Ltd (AIRMPL) for FY18, FY19 and FY20, FY21 provisionals, projections of FY21, FY22 and publicly available information and information / clarifications provided by the entity’s management.

The rating draws strength from the experienced management, favourable location and moderate financial risk profile. The rating is constrained by the vulnerability to fluctuations in the prices of raw material and finished goods, intense competition in the industry, non achievement of profitability projections, moderate tangible Net Worth and gearing.
Going forward the ability of the company to improve its margins, scale of operations, gearing, deriving envisaged benefit from planned capex, along with strengthening its overall financial risk profile would be its key rating sensitivity.

KEY RATING DRIVERS

Credit Strengths:

• Experienced promoters coupled with established track record of operations :

  Ajay Ingot Rolling Mill Pvt Ltd (AIRMPL) was established in 2004 manufacturing of MS Billets and TMT Bars. The company is promoted by Mr. Sanjay Kumar Agarwal & Mr. Vishnu Prasad Jindal. Both the promoters have more than a decade of experience in the iron and steel industry, and look after the day-to-day operations of the company.

• Moderate financial risk profile :

  The scale of operations remain moderate with the company achieving revenues of Rs. 267.67 Crs as per FY21 provisionals. Debt protection metrics are moderately driven by DSCR and ISCR of 1.89x and 6.15x in FY21, indicating the internal accruals are adequate to service its debt obligations. Current ratio is moderate having increased to 1.64x in FY21 as compared to 1.38x in FY20. TNW increased to Rs. 27.77 Crs as per FY21 provisionals as compared to Rs. 17.84 Crs in FY20 on account of ploughing back of profits. AIRMPL has planned further capacity addition which is currently under process and their scale of operations are expected to increase going forward.

• Strategic Location :

  AIRMPL is strategically located in Raigarh, which is an important steel cluster. As a result, several suppliers are nearby resulting in raw materials being easily available, hence resulting in reduced transportation costs. Additionally, they are provided with subsidised electricity which saves them 25% on electricity costs. Since electricity forms a major part of operating expenses, this results in significant savings on operating expenses on a yearly basis. These factors have resulted in better operating profit margins for the company.

• Prudent working capital management :

  Prudent working capital management with a cash conversion cycles of 22 days in FY20 along with a low GCA/Sales of 11.41%. This mitigates some of the risks involved with the working capital intensive nature of operations of the company.

Credit Risks:

• Intense competition and inherent cyclicality in the steel industry :

  Company is engaged in the manufacturing of TMT bars and ingots, the industry of which is characterized by high fragmentation mainly due to presence of a large number of unorganized players. The company markets its products in Central India, which is a hub of steel plants, on account of proximity to the mineral rich states of Chhattisgarh. Low level of product differentiation further intensifies the competition, leading to lower bargaining power vis-a-vis the customers. The moderate scale of operations continue to limit AIRMPL’s ability to benefit from economies of scale available to players with larger volumes. The company is exposed to intense competitive pressures from large number of organised and unorganised players along with its exposure to inherent cyclical nature of the steel industry. Demand for the products is linked to Capex programs of end-users such as the real estate sector, civil construction, and engineering industries; which are cyclical. Operating margins are vulnerable to fluctuations in input prices. The prices and supply of the main raw materials viz. steel ingots/billets and coal, directly impacts the realizations of finished goods and any sharp variation in input prices with the absence of almost similar variation in realizations is likely to dent profitability significantly.

• Moderate Tangible Net Worth and gearing :

  Tangible Net Worth stood moderate at Rs. 17.84 Crs in FY20. This increased to Rs. 27.77 Crs as per FY21 provisionals on account of ploughing back of profits into the business. Though Gearing is at comfortable level it has increased to 0.98x in FY21 as compared to 0.74x in FY20 due to increased borrowings. With the company undertaking further planned capex, the gearing might further decline in case of additional debt requirements.

• Non achievement of Profitability Projections :

  AIRMPL has achieved an EBITDA of Rs. 11.73 Crs as per FY21 (Prov.) VS Rs 17.83 Cr projected, indicating non-achievement of EBITDA projections of Rs. 17.83 Crs for FY21 as per last rating. Though the PAT of Rs. 5.86 Crs in FY20 appears to increase vs. Rs. 5.28 Crs in FY19, but PAT of FY20 includes a substantial level of non-operating income of Rs. 2.19 Crs which indicates decline in PAT (from core business operations) in actual terms in FY20. Further PAT number for FY21 is provisional & yet to take firm/final shape.

• Capex supported by term loans, promoter contribution and internal accruals :

  The Company is undertaking a planned capex for its existing plant. The project is funded by promoter contribution, internal accruals and term loans. Though DSCR and ISCR are at a moderate level presently, the envisaged expansion may impact the company’s capital structure and debt protection metrics since there will be further cash outflow for the capex & servicing of debt obligations. This is their second recent cycle of capex, with AIRMPL having undertaken capex in FY19 for capacity addition. While they have benefited from their previous capex, they are yet to envisage benefits from the current capex as the sale targets for FY22 are projected at a lower level VS FY21. Ability to derive envisaged benefit from the said capex is a key rating monitorable.

• Sustainability of growth :

  Fluctuation in sales during the last 2 years. Client achieved Net Sales of Rs. 224.69 Crs in FY20 which is at a lower level when compared to level of sales for FY19 at Rs. 241.28 Crs. While sales increased in FY21 to Rs. 267.67 Crs, sales for FY22 are projected at a lower level. Sustainability of growth is yet to be seen and will be a key monitorable. Sales target for FY20 given during the last rating could not be achieved as per ABS FY20.

ANALYTICAL APPROACH - Standalone

BWR has factored into a standalone business and financial risk profile of the Company along with the business Ajay Ingot Rolling Mill Pvt Ltd (AIRMPL) to arrive at the rating as they are engaged in a similar line of business. Reference may be made to the Rating Criteria hyperlinked below.

RATING SENSITIVITIES

Going forward the ability of the Company to sustainably scale up its operations, improve the overall financial risk profile of the company backed by profitability margins, gearing levels, coverage indicators,  service debt repayment timely and efficiently manage its working capital would be key rating sensitivities.

Positive: Significant and sustained increase in the scale of operations & profit along with an improvement in the overall credit metrics marked by improved leverage and coverage ratios and better liquidity management will be positive for the ratings.

Negative: The rating will be downgraded in case of a significant downturn in the industry leading to a decline in operational/financial performance of the Company, Significant decline in profitability & higher working capital, weakening the capital structure or debt protection metrics and/or increase in debt levels resulting from any unanticipated capex.

LIQUIDITY INDICATORS - Adequate

• Cash and bank balances stood at Rs. 0.51 Crs as on 31 March 2021.
• Current ratio is moderate having increased to 1.64x in FY21 as compared to 1.38x in FY20.
• Debt protection metrics are moderate driven by DSCR and ISCR of 1.89x and 6.15x in FY21, indicating the internal accruals are adequate to service its debt obligations.
• Net Cash Accruals of Rs. 8.12 Crs in FY20 and Rs. 9.85 Crs in FY21 is sufficient to cover CPLTD of Rs. 2.00 Crs and Rs. 3.20 Crs respectively.
• Average Cash Credit utilization stood at 80.58% for last 8 months

ABOUT THE ENTITY

Ajay Ingot Rolling Mill Pvt Ltd (AIRMPL) was incorporated in July 2004, is promoted by Mr. Sanjay Kumar Agarwal and Mr. Vishnu Jindal, based out of Raigarh, Chhattisgarh. The Company is engaged in the manufacturing of MS Billets and TMT Bars. The current installed capacity of the production unit of the Company at Raigarh, Chhattisgarh is manufacturing Steel Bars in its rolling division by using its own MS Billets manufactured in its own melting division and with hot rolling technology. The Company is engaged in the manufacturing of MS Billets and TMT Bars with an installed capacity of 59904 TPA. 

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	224.69	241.28
EBITDA	Rs.Crs.	9.94	10.77
PAT	Rs.Crs.	5.86	5.28
Tangible Net Worth	Rs.Crs.	17.84	11.98
Total Debt/Tangible Net Worth	Times	0.74	1.23
Current Ratio	Times	1.38	1.27

KEY COVENANTS OF THE FACILITY RATED

N/A

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

CRISIL B+/Stable; ISSUER NOT COOPERATING* as on April 14, 2020.

CARE BB-; Stable; ISSUER NOT COOPERATING* as on May 20, 2020.

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	30.05	BWR BBB-/Stable (Reaffirmation)	28Feb2020	BWR BBB -/Stable (Assignment)	NA	NA	NA	NA
Grand Total		30.05	(Rupees Thirty Crores and Five lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

• General Criteria
• Approach to Financial Ratios
• Manufacturing Companies

Analytical Contacts
Rachit Salian Rating Analyst rachit.s@brickworkratings.com	Sushil Kumar Chitkara Director - Ratings Board : +91 22 2831 1426, +91 22 2831 1439 sushilkumar.c@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

SL.No.	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Cash Credit - Sanctioned	12.00	_	12.00
2	Term Loan - Out-standing	6.05	_	6.05
3	Term Loan - Sanctioned	12.00	_	12.00
Total		30.05	0.00	30.05
TOTAL (Rupees Thirty Crores and Five lakhs Only)